Gross and net lending of £240 billion and £38 billion respectively in 2016 would nevertheless represent the strongest performances since 2008 and it adds that a gentle upward trajectory for the mortgage market going forwards should calm macro-prudential concerns.
‘The proportion of cash financed transactions has shown signs of stabilising in 2014, and may decline gently as mortgage availability continues to improve. Prospects for economic growth, job creation and a pick-up in earnings are relatively positive, and these factors, along with the easing in interest rate expectations over recent months, should underpin housing market sentiment,’ the report explains.
It also welcomes the form of stamp duty announced by the Chancellor George Osborne in his autumn statement and said that this will also benefit lending activity in the short term.
However, it also points out that housing market activity has nudged lower since the summer but this is consistent with the long standing view that affordability considerations would limit the scope for transactions to return to longer-run norms. ‘We expect the pace of house purchase in 2015 and 2016 to be a little below this year’s level,’ it adds.
When it comes to buy to let, the CML says lending in this sector should continue to make some headway, although this may be limited by uncertainties about the appetite to regulate it or the activities of landlords more generally.
Some further improvement in mortgage arrears and possessions is possible in 2015, before a relatively modest reversal as interest rates increase gently through the second half of our forecasting period.
Ales could fall. ‘Reflecting the uncertainties about wider economic developments and housing activity beyond the next few months, we think that transactions will ease back modestly in 2015 and thereafter broadly settle,’ the forecast points out.
It also points out that cash based transactions have grown in importance to account for more than a third of market sales, with the reduced availability of mortgage credit following the credit crunch. The cash proportion of sales peaked at nearly 36% in 2013 and in 2014 as mortgage credit availability has improved, mortgage financed transactions have grown at more or less the same pace as cash transactions, and so the latter’s proportion has remained fairly steady.
‘Looking ahead, we anticipate that cash transactions will progressively edge back down nearer to a third of sales, and so to a limited degree allow for a softer decrease in the volume of mortgage financed sales than for the overall market,’ the report adds.
With typical loan size echoing some further modest increases in house prices, the CML expects the value of lending for regulated house purchase to move a little higher to about £120 billion in 2015 compared with £115 billion in 2014.
‘We have pencilled in only modest growth in remortgage activity over our forecast period, as current market expectations for base rates mean that the incentives for households to refinance change only slowly over time,’ it explains.
The CML says that with the underlying conditions for remortgaging become progressively a little more fertile as a result of rising house prices and household incomes over time, but an indirect unintended consequence of the MMR may be that more borrowers opt to refinance with their existing lender than in the past. Typically, such activity would not be captured in remortgage estimates.
‘With strong fundamentals in place for the further expansion of the private rented sector, we expect to see further expansion of buy to let activity, relative to gross mortgage lending and the volume of property sales, over time. Buy to let activity is subject to a degree of regulatory uncertainty on several fronts, however, and this brings risks for its continuing orderly evolution, the report says.
‘Bringing all of our analysis together, we expect industry gross lending to climb modestly from £207 billion this year, to £222 billion in 2015, spread across regulated and buy to let lending, house purchase and remortgage. We envisage stronger growth to £240 billion in 2016, as cash purchases ease back and nominal incomes growth supports resilient house prices and loan values,’ it continues.
The CML explains although first time buyer numbers may edge lower over the next two years, it expects further modest growth in net lending to £32 billion and £38 billion in 2015 and 2016.
‘Looking ahead over the next two years, housing and mortgage market developments appear well supported by relatively favourable economic fundamentals. However, prudent and sustainable lending in the face of ongoing affordability pressures necessarily limit the further upside scope for mortgage lending,’ it concludes.
